The Finance Committee of Canada’s lower house is urging the government to dramatically change the way it regulates cryptocurrencies to prevent their use in money laundering.

In its recent report titled Confronting Money Laundering and Terrorist Financing: Moving Canada Forward, the committee recommended three significant ways the government should monitor cryptocurrencies. The first recommendation is to regulate crypto exchanges at the point that fiat currency is converted so as to establish these exchanges as money service businesses (MSB). In Canada, MSBs are required to register with FINTRAC, follow the AML/ATF reporting and recordkeeping requirements, verify the identity of clients for certain kinds of transactions, and operate a Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) compliance program.

The committee’s second recommendation is for the government to establish a regulatory regime for crypto wallets so as to ensure that proper identification is required, and that true ownership of wallets is known to the exchanges and law enforcement bodies if needed.

“Law enforcement bodies must be able to properly identify and track illegal crypto-wallet hacking and failures to report capital gains,” the report said.

The committee’s last recommendation is for the government to establish a license for crypto exchanges in line with Canadian law and look to the US state of New York’s Bitlicense program as a model for best practices. According to the report, in the absence of some degree of regulatory oversight, cryptocurrency transactions may be used by parties to swiftly move large amounts of wealth across borders, and that regulating the following conversion mechanisms would address the AML concerns of the crypto space.

“During the Committee’s travels, a number of witnesses spoke about the opportunities that cryptocurrencies might provide for criminal activities,” the report said. “Some witnesses estimated that 80% of the value of cryptocurrencies could be linked to the proceeds of illegal activities, and that while the risk of cryptocurrencies being used to launder money is low, it is a very high risk for being used as a payment method for criminal activity.”

The Canadian government is required to answer the recommendations in the House of Commons in 120 days.